Question 5 (c)

Converting a traditional partnership into an LLP: procedure and consequences

9 marks

Time to write
About 18 minutes
Topic
Conversion into LLP
Notes
Crux notes

Question

Question 5 (c) · 9 marks

Discuss the procedure for converting a traditional Partnership into an LLP. What will be the consequences of such a conversion?

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

18 minfor 9 marks

Read from the question

  • Discuss…What…?Two asks in one question: answer both.
  • procedureA process: the steps in order, one heading each.

What the paper leaves open

This is the second part of Q5; the paper labels it (c) and has no part (b), and that label is kept.

Write it in this order

  1. Read; underline the asks; jot your points 1 min
  2. 1 Rule; eligibility and statements to be filed 3 marks 6 min
  3. 2 Registration and refusal 2 marks 4 min
  4. 3 Effects of conversion 3 marks 5 min
  5. 4 Conclusion 1 mark 1 min
  6. Check: every ask answered, key terms underlined 1 min

Short on time? Trim steps 1–3 evenly rather than skip one: each is capped at its own marks. End with step 4 in a line or two.

Try it first. About 18 minutes for 9 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Rule. A firm may convert into an LLP under section 55 of the LLP Act, 2008 by complying with the Second Schedule; on conversion its property, assets, rights, liabilities, obligations and undertaking are transferred to the LLP (paras 1–2).

Picture itConverting a traditional partnership into an LLP: procedure and consequences

1All three partners of the firm sign the conversion together—and nobody else.

EligibilityThe partners of the proposed LLP comprise all the partners of the firm and no one else.

2The new LLP certificate goes up on the wall; the firm's old board lies on the floor.

Effect of registrationThere is an LLP by the name specified in the certificate; the firm is deemed to be dissolved.

3An old bill from the firm's days still reaches the partners themselves.

Partners' existing liabilitiesEach remains personally liable, jointly and severally with the LLP, for the firm's liabilities and obligations incurred before the conversion.

Procedure.

  1. Eligibility (para 3). A firm may apply to convert if, and only if, the partners of the proposed LLP comprise all the partners of the firm and no one else.
  2. Statements to be filed (para 4). The firm files with the Registrar (a) a statement by all its partners, in the prescribed form and with the prescribed fee, giving the firm's name and registration number (if any) and the date of its registration under the Indian Partnership Act, 1932 or any other law; and (b) the incorporation document and the statement referred to in section 11.
  3. Registration (para 5). On receiving these documents the Registrar, subject to the Act, registers them and issues a certificate of registration stating that the LLP is registered on and from the date specified in it. Within fifteen days of registration the LLP must inform the Registrar of Firms with which the firm was registered under the Indian Partnership Act, 1932 (if it was registered) of the conversion and of its particulars.
  4. Refusal (para 6). The Registrar may refuse to register if he is not satisfied with the particulars furnished, subject to an appeal to the Tribunal; he may also require the documents to be verified as he thinks fit.

Effects. Partners' existing liabilities. Conversion does not release the partners of the former firm: each remains personally liable, jointly and severally with the LLP, for the firm's liabilities and obligations incurred before the conversion or arising from a contract made before it (Second Schedule, para 16).

Effect of registration (para 7): on and from the date in the certificate,

    1. there is an LLP by the name specified in the certificate;
    1. all the firm's property, tangible and intangible, and all its assets, interests, rights, privileges, liabilities and obligations, and the whole of its undertaking, are transferred to and vest in the LLP without further assurance, act or deed; and
    1. the firm is deemed to be dissolved and, if it was registered under the Indian Partnership Act, 1932, removed from the records kept under that Act.

Conclusion. The firm's partners become the LLP's partners, the firm's business passes to the LLP without any separate transfer, and the firm itself is dissolved.

Where the 9 marks sit

#ComponentMarks
1Rule; eligibility and statements to be filed3
2Registration and refusal2
3Effects of conversion3
4Conclusion1
Total9
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